Strategy to deliver public procurement: opportunities to SMEseconomia.uniroma2.it/public/ppm/files/PPM_RomeTV_July14_(integrato... · Strategy to deliver public procurement: opportunities

Strategy to deliver public

procurement: opportunities to SMEs Alessandro Ancarani Associate Professor Managerial Engineering – Dept.Civil Engineering and Architecture

• Strategic Public Procurement and innovation

• Strategic participation of SMEs to public procurement

• SMEs in fact in World, Europe and Italy

• Main issues about Public procurement and SMEs

• Policy actions

• Theoretical framework for procuring public services

• Customer Value concept and public procurement co-design

• Case-study: Canadian SMEs

• Conclusions

Agenda

• There is an increasing consensus in innovation policy discussions that the demand side of innovation has been neglected

• Despite an emphasis on user-supplier interaction and a recognition that demand for innovations must be important, policy prescriptions emerging from ‘systems’ approaches have tended to focus predominantly on the supply side of economic life

• Public procurement is a multi-objective policy, the main goal of which must remain to ensure the quality of government services and the use of the products and services for the public sector

• Innovation can be an explicit secondary objective in certain instances, e.g. to ensure that vital government functions can be secured against a range of shocks and threats (mission-critical procurement) or to obtain better products for use in carrying out government functions; to appropriately exploit government market power and to ensure that the needs of those consuming public goods (where market forces may not effectively stimulate innovation) are met

PP AND INNOVATION 1/2

• PP refers to the acquisition of goods and services by government or public sector organizations

• A distinction is made between ‘normal’ or ‘regular’ PP on the one hand and ‘public technology procurement’ on the other

• Public technology procurement means that a public agency acts to purchase, or place and order for, a product that does not yet exist, but which could be developed, with additional work by organizations producing, supplying, and selling product (Edquist and Hommen 2000)

• Regular PP occurs when public sector buy ready-made products (no R&D is required) and about which decisions can be made on the basis of readily available information about price, quantity, and performance, given the existence of standardized markets

• A third modality is when the public sector directly procures R&D to support the activities and decisions of government and public authorities

• Proponents of the use of PP to stimulate innovation refer to ‘innovative procurement’ or ‘procurement of innovation’ to reflect a broader view of innovation beyond R&D (Edler and Georghiou, 2007)

PP AND INNOVATION 2/2

• Procurement can influence innovation

• However these influences also depend on mix of goods and services that are demanded and strategies public sector employs to shape nature and composition of this mix

• As point out, “successful innovation is in essence a coupling process focusing superior technological competencies in products and processes to meet the specific needs of users” (Murmann et al., 2006)

• Importance of focusing on products that reflect different needs stems partly from recognition of variety within a ‘public sector’ which typically comprises many independent agents (OFT, 2004)

• Knight et al. (2003) rightly point out that “it is a sweeping statement to talk of one ‘public sector’; government and wider public sector comprises a large array of departments, agencies, quasi-autonomous non-governmental organizations, and executive organizations with very variable characteristics and spend portfolios”

Udine 28/10/2009

STRATEGIC PP 1/8

• Nature and complexity of procured products and services will vary greatly within and across public sector organizations, leading to different buying situations and different strategies to ensure quality of public service provision

• These decisions in turn send messages to supplier firms, influencing demand environment and thus decisions shaping innovation

• Strategic decisions in public sector as to what and how to procure will be determined by value for money considerations, criticality of procured goods and services to department or agencies’ core mission and level of complexity/sophistication of products and services

• In this sense PP decisions are not dissimilar to purchasing decisions made by private firms and in fact ‘purchasing portfolio models’ aimed at developing and implementing differentiated purchasing strategies also constitute ‘good practice’ procurement in public sector

Udine 28/10/2009

STRATEGIC PP 2/8

• Idea behind such methods is to minimize supply risk whilst taking advantage of buying power

• The ultimate objective is to derive competitive advantage by better managing supplier relations, thus converting purchasing activities into a strategic business function (Gelderman and Weele, 2005)

• Standard purchasing portfolio model developed by Kraljic (1983) classifies products on the basis of two key dimensions, profit impact and supply risk

• Accordingly 4 categories of purchased items emerge: ‘bottleneck’, ‘non critical’, ‘leverage’ and ‘strategic’.

• Each category would necessitate a different strategy

STRATEGIC PP 3/8

• Items in bottleneck/strategic categories include goods and services strategic for public administration for their impact on business or policy. They are mission-critical and therefore entail a greater degree of risk

• Bottleneck items require volume insurance, vendor control, security of inventories and backup plans to reduce supply risk

• In strategic items, further analysis is recommended of the buying strengths against the strengths of the supply market, and 3 different supplier strategies are identified in relation to the different power positions: ‘diversify’, ‘balance’ or ‘exploit’ (Kraljic, 1983)

• Non-critical items require efficient processing, product standardization, order volume and inventory optimization

• Leverage items allow to exploit its full purchasing power, for instance through tendering, target pricing and product substitution

• Each procedure ask for a specific procedure, with the aim to reduce dependence on specific suppliers (Gelderman and Weele, 2002)

STRATEGIC PP 4/8

• Strategies mainly involve standardisation and pooling of resources, reduction of over-specification (‘decomplexing’), the use of strategic partnerships with suppliers and supplier development in order to enhance capabilities.

• Certainly the challenges faced by procuring firms will differ from those faced by public procurers

• Public procurement needs to conform with a particular legal and regulatory framework with its own requirements for transparency and non-discrimination

• Public procurement entails political as well as other kinds of risk and incentive structures clearly differ from the private sector. All this can translate into a greater aversion to risk in procurement

Udine 28/10/2009

STRATEGIC PP 5/8

• Public sector procurement frequently seeks to address additional strategic policy objectives such as regeneration, welfare, sustainability, and now innovation (OFT, 2004; Wang and Bunn, 2004)

• Strategic decisions are made in the public sector also to reduce risk and allow cost-savings. These entail pooling or aggregating requirements, standardisation, specification setting and supplier management. Procurers may decide to pool resources to provide bigger contracts. Alternatively, they may decide to harmonize and standardize requirements. They may aggregate demand to exploit purchasing power

• Different buying situations will in turn require different types of buyer/supplier relationships. As in the private sector, these will depend on the nature of procured items and associated risks

• Wag and Bunn (2004) identify four types of government/business relationships in government contract implementation, depending on the length of contracts, product complexity and uncertainty about results

Udine 28/10/2009

STRATEGIC PP 6/8

• In collaborative relationships both parties frequently exchange information, openly and intensely, share cooperative norms and work together to achieve contract objectives

• Collaborative relationships could involve co-invention and are particularly important in the case of high product complexity and high results uncertainty, as in ‘experimental procurement’

• Recurrent relationships also involve repeated exchanges between buyers and sellers, although the flow of information shared and frequency of information exchange are low

• Recurrent relations are important in those cases where low product complexity and low results uncertainty are coupled with lengthy contracts (that mainly characterises ‘adapted’ procurement)

• In supervisory relationships procurers believe that suppliers hold full responsibility for the success of the contract. In these cases government has a supervisory role and suppliers enjoy more freedom in choosing suitable models and techniques.

STRATEGIC PP 7/8

• Contractual modes within category of technological procurement that place risk on the supplier (public finance initiatives) fall into this category

• In arm’s-length relationships, both government procurers and business sellers view relationship as a market or transactional interaction. These are the most likely relationships in case of low levels of product complexity and results uncertainty coupled with short contract lengths

• Arm’s-length contracting such as e-procurement would be adequate for efficient procurement. Relevant to ensure transparency of information on contract opportunities to ensure competition/guarantee best bidders

PP influences innovation directly through purchasing of innovative goods and services

PP affects innovation indirectly by influencing the size and structure of the market, by setting standards and by increasing or reducing competition

PP influences innovation indirectly by altering the structure of competition in the market in the short and medium term

PP impacts on market conditions of other buyers (overall number and capacity of suppliers), range of products and services available and technologies used

STRATEGIC PP 8/8

CHARACTERIZATION OF PP 1/3

Fourfold typology of PP: procurement of standardised products serving a generic

market (efficient procurement); addressing specific demand niches but employing

known production methods and practices (adapted procurement); encouraging new

technical solutions to meet a generic need (technological procurement); and adapted

technical solutions (experimental procurement)


Udine 28/10/2009


PERSPECTIVE FOR

SUSTAINABLE SUPPLY

New perspective for supplier development in the supply chain, referred to as

“customer development” or “focal company development”

Supplier plays the main and mentor role via proposing initiatives to include

others, or supporting the focal company in achieving other objectives

What are key factors that determine direction in development relationship in

supply chain (e.g., capabilities)?

To what extent a customer development perspective differs from the meaning of

collaboration relationship or buyer-supplier mutual efforts?

SMALL AND MEDIUM

ENTERPRISES

ISSUES AT HAND

• Market access in PP limited for SMEs and excessively low in

relation to their number (Bovis, 1998)

• Only few SMEs are able and willing to sell to the public sector

(Smith and Hobbs, 2001; UK SBS survey, 2006)

• SMEs involvement in PP beneficial to support domestic economy and to foster longer term economic growth

• By contracting with SMEs, government contributes to job

creation and economic development (Morand, 2003; Reed et al., 2004)

• SMEs contribute to innovativeness (Anschoff and Sofka, 2009), and entrepreneurship (Reed et al., 2004)

19

OBSTACLES TO SMES’

INVOLVEMENT

20

cost of bidding

supplier pre-qualification

onerous documentation

inadequate access to relevant information

contract size

Limited resources by firms

deviations from requirements

TRANSACTION COSTS AND SMEs

• Analyses of SMEs behavior rely on the assumption that SMEs face higher transaction costs stemming from indivisibilities, asset specificty, information asymmetries, (Noteboom 1993; Lee et al. 1999)

• Indivisibilities – Searching for bids, preparing bids involves fixed indivisible expenses (e.g.

hiring and training dedicated personnel ) whose opportunity cost is higher for smaller firms (Fee et al. 2002)

– Onerous documentation, and the time and financial costs involved in preparing offers refer to the single transaction, thus they may be independent of the size of the tender, and will therefore weigh more heavily for SMEs who tend to bid for smaller size contracts.

TRANSACTION COSTS AND SMEs

• Asset specificity

– public sector may require satisfaction of specific requirements, these may be viewed as an investment in specific assets for SMEs, whose sustainability must be evaluated in face of their estimated chances of winning contracts

• Information asymmetries – SMEs often face higher costs for offsetting information asymmetries, in terms

of signaling mechanisms (quality guarantees, insurance coverage, etc.)

– SMEs may bypass higher costs of signaling by building long term relationships with their customers. Since procurement rules do not attach value to long-term relationships with suppliers, bidding for government contracts is typically considered by SMEs more costly than bidding for comparable projects in the private sector

• Competitive procurements are usually open only to qualified suppliers to guarantee good contract execution

• To screen participants, the procurer can use participation requirements that aim at guaranteeing participants with sufficient legal and technical qualifications excluding at the same time the inadequate ones

• Almost all organizations restrict participation to the bidding phase by requiring technical, economical and legal qualifications

• However, the type and the number of qualifications requested to suppliers varies across procuring institutions and countries

1/6 PARTICIPATION TO PP

• Different procurement legislation (U.K. and U.S. have great discretion on all aspects of procurement design) but also, different strategies in terms of type and/or number of required qualifications

• Most institutions require suppliers to satisfy three to five parameters in order to enter the competitive tendering

• Moreover, requirements vary according to: – the nature of the good/service being procured,

– the degree of desired participation to the competitive tendering (e.g. weaker participation requirements may facilitate participation of SMEs)


Carpineti et al.,

2006)


• But what can a procurer do in the case of a poor performance during the execution of the contract?

• Several institutions declare that in case of contractor’s poor performance the contracting authority can cancel the contract

• Often the contracting authorities do not apply this clause because re-tendering the object of the contract is too expensive

• In this context, bidder’s reputation and past performances may represent an important element for the selection of suppliers. A specific participation requirement may be the use of a bidder’s reputation in the awarding phase

• The French institutions and the American Federal Acquisition Regulation qualifies candidates which have a satisfactory record of past performance


It is common practice among institutions to divide the contract into lots

This choice is crucial because it may have very important consequences in terms of competition in the short and long run

However, even though the majority of institutions split the contracts into lots, the main reasons behind this choice vary among them

Institutions without a common strategy for No. and type of lots

Institutions split the contracts into lots to: – promote participation to the single competitive tendering and to future

procurements (more lots increase the probability of awarding lots to more than 1 supplier and to manage competition on procurements over time)

– optimize transport’s cost with relevant geographical dispersion of suppliers

– facilitate SMEs participation


• To favor the participation of SMEs, the US legislation allows for set- asides. The FAR (19.5) states that “the purpose of small business set-asides is to award certain acquisitions exclusively to small business concerns. A “set-aside for small business” is the reserving of an acquisition exclusively for participation by small business concerns”

• In US specific legislation supporting SMEs, the Small Business Administration (SBA), founded on 1953

• EU Directive does not allow for set-asides. Increasing procurement activity centralization pervading the EU, SMEs have to face more difficulties to be awarded a public procurement contract


1/2 MSMEs in the world (2010)

• MSMEs in Europe (2008) 20.7 *106 (5,5 * 106 craft firms), 99,8% of EU firms has less than 249 employees, with 67,4% of employment, 91,8% has less than 9 employees

• In USA, 14.7 *106 (2008), with 55% of employment

• Other countries base their definition either on turnover (India) or headcount

2/2 MSMEs in the world (2010)

EU DATA 1/2

EU DATA 2/2

EU vs USA vs JAPAN

USA DATA

SMEs IN EUROPE

SMEs' access to public procurement varies

SMEs secure 33% of value and 60% of number of contracts above thresholds fixed by

EU directives on PP (2006-2008). Directives cover roughly 16% of EU PP market

Medium sized companies are performing much better that small and micro companies

PP AND SMES IN EUROPE

Many barriers discourage SMEs from responding to tenders:

difficulties in obtaining information

lack of knowledge about tender procedures

the large size of the contracts

too short time span to prepare the proposal

cost of preparing the proposal (many costs are fixed, SMEs face

disproportionately high costs in comparison with larger enterprises)

too high administrative burdens

unclear jargon used

high qualification levels and required certification

financial guarantees required

favouring local and national enterprises

finding collaboration partners abroad

SMES IN ITALY: BASIC FIGURES

• Estimates for 2010 (based on 2002-2007 figures from Structural Business Statistics Database_revised

(Eurostat). Estimates produced by Cambridge Econometrics

• Data cover the 'business economy' which includes industry, construction, trade, and services, but it does

not cover agriculture, forestry, fishing, education, and health

ITALY FACT SHEET IN A NUTSHELL

Italy’s SME sector is expected to recover to pre-crisis levels

only after 2011

Italy is more dependent on micro firms than other EU

members but medium-sized enterprises have grown the fastest

since 2003

There is still some catching up to do in almost all SBA areas

to reach EU average performance

In 2010, Italy adopted a strategy to speed up SBA take-up

1/3

ITALY FACT SHEET IN A NUTSHELL (2010)

Italy’s economy is driven by a vast resource of micro firms

The share of micro firms in the overall number of firms is

substantially higher in Italy than the EU average

The highest impact micro firms on the Italian economy is on

employment: while in the EU, less than a third of the

workforce is employed by micro firms, in 2010 it was 50 % in

Italy.

In employment terms, the average EU-27 firm had 4.3

employees in 2010 and 3.98 in Italy.

The smaller firm size should not put the economy as a whole

at a disadvantage in competitiveness terms

2/3

ITALY FACT SHEET IN A NUTSHELL (2010)

Smaller and, more specifically, medium and larger firms still

tend to concentrate in manufacturing, although less in recent

years

Trends show that it is not the micro firms that are the most

dynamic but the small and medium firms

Micro- and large firms stagnated during that period

Post-2008 crisis has made a lasting dent in the growth of all

firms of all sizes. (European-wide phenomenon)

There is a contrast in Italy between the vast pool of micro firms

and a general business climate that is marked by low

enthusiasm for entrepreneurship compared to the EU average

This could be interpreted in different ways, but it certainly

points to Italian firms’ strength in withstanding adverse

conditions

3/3

Entrepreneurship 2020

Action Plan

• Entrepreneurship critical for improving economies and for creating jobs

• Opens new markets and sipport new competencies and capabilities

• Increases compeitiveness and innovativeness

• Creates wealth and increases productivity

• Determinant for reducing unemployment

• New SMEs in Europe create 4 milions new jobs

• Less entrepreneurship in the last years. Since 2004, the proportion of people who prefers to be entrepreneurs is reduced in 23 countries

• Up to 3 uìyears ago, 45% of European citizens preferred self-employment job, now only 37%. In USA and China 51% and 56% respectively

• A start-up in EU grows with a lot more difficulties and has fewer chances to become a large firm than in USA

• SMEs go bankrupcy more frequently in the first 5 years

ENTREPRENEURSHIP 2020

ACTION PLAN

The current situation can only be transformed with bold and co-

ordinated action by all administrations at European, national and

regional levels

This Action Plan is a blueprint for decisive joint action to unleash

Europe's entrepreneurial potential, to remove existing obstacles and

to revolutionize the culture of entrepreneurship in Europe

It aims to ease the creation of new businesses and to create a

much more supportive environment for existing entrepreneurs to

thrive and grow

It proposes three areas for immediate intervention:

A. Entrepreneurial education and training to support growth and

business creation

B. Strengthening framework conditions for entrepreneurs by

removing existing structural barriers and supporting them in

crucial phases of the business lifecycle

C. Dynamizing the culture of entrepreneurship in Europe:

nurturing the new generation of entrepreneurs


ACTION PLAN: PILLAR A The Commission will: • Develop a pan-European entrepreneurial learning initiative bringing together existing European and

national expertise for impact analysis, knowledge sharing, development of methodologies and peer

mentoring between practitioners from Member States

• Reinforce co-operation with Member States to assess introduction of entrepreneurship education in

each country based on real experience and to support public administrations wishing to learn from

successful peers

• Establish a framework to encourage development of entrepreneurial schools and VET institutions

• Promote recognition/validation entrepreneurial learning in informal learning environment

• Disseminate entrepreneurial university framework; facilitate exchange between universities

interested in applying framework; gradually promote it to EU Higher Education Institutions

• Endorse successful mechanisms of university-driven business creation (spin-offs etc.) and emerging

university-business ecosystems around key societal challenges.

The Member States are invited to: • Ensure key competence "entrepreneurship" embedded into curricula across primary, secondary,

vocational, higher and adult education before end of 2015.

• Offer opportunity to young people to have practical entrepreneurial experience before leaving

compulsory education (running a mini-company, being responsible for an entrepreneurial project for

a company or a social project)

• Boost entrepreneurial training for young people and adults in education by means of Structural

Funds resources. Promote entrepreneurial learning modules for young people participating in

national Youth Guarantee schemes


ACTION PLAN: PILLAR B New businesses need specific care. There are 6 key

areas where action is needed to remove existing

obstacles impeding their creation and growth:

1) Access to finance

2) Support for entrepreneurs in the crucial phases of

the business lifecycle and their growth

3) Unleashing new business opportunities in the digital

age

4) Transfers of businesses

5) Bankruptcy procedures and second chance for

honest entrepreneurs

6) Regulatory burden reduction


ACTION PLAN: PILLAR B.1 1) Access to finance (Finance programmes aimed at developing a

market for microfinance in Europe; Facilitate direct access of SMEs to

capital market through development of an EU regime for venues

specialised in trading of shares and bonds issued by SMEs; Assess

need of amending current national financial legislation with aim of

facilitating new, alternative forms of financing for start-ups and SMEs)

2) Support for entrepreneurs in the crucial phases of

the business lifecycle and their growth (50% of new

businesses fail during their first five years; Clusters, business networks

and other types of association of enterprises can provide supportive

environments; Reducing tax compliance costs would improve business

environment, in particular for small firms, that will enable them to grow)


ACTION PLAN: PILLAR B.2 3) Unleashing new business opportunities in the digital

age (Better use of information and communication technology (ICT)

can significantly help new businesses to thrive; investing in digital

technologies is no longer a choice;)

4) Transfers of businesses (Every year approximately 450,000

firms with 2 million employees are transferred across Europe. Yet it

can be so difficult to make a transfer that an estimated 150,000

companies with 600,000 jobs may be lost each year)

5) Bankruptcy procedures and second chance for

honest entrepreneurs (Evidence shows that by far the majority

(96%) of bankruptcies are due to a string of late payments or other

objective problems; 'second starters' are more successful and survive

longer than average start-ups; they grow faster and employ more

workers)


ACTION PLAN: PILLAR B.3 6) Regulatory burden reduction (Entrepreneurs should be the

'normal customer' for whom administrations benchmark their

procedural requirements and yet nearly three-quarters of Europeans

consider it too difficult to start their own business because of

administrative complexities; Regulatory obligations of businesses

should be clear and simple; Red tape should be eliminated or reduced

wherever possible for all businesses and particularly for micro-

enterprises including the self-employed and the liberal professions;

Entrepreneurs should also be able to count on one single contact point

to receive comprehensive information on licenses, administrative

procedures, finance and public support)


ACTION PLAN: PILLAR C New perceptions: entrepreneurs as role models (Europe

has a limited number of known entrepreneurial success stories; a change in

the perception of entrepreneurs through practical and positive

communication)

New horizons: reaching out to women, seniors, migrants,

the unemployed, young people (Women represent a large pool of

entrepreneurial potential in Europe; Seniors are a valuable resource for

entrepreneurship; Senior entrepreneurs can also be a valuable resource for

other entrepreneurs; According to the OECD, migrants are more

entrepreneurial than natives and a foreign-born self-employed person who

owns a small or medium firm creates between 1.4 and 2.1 additional jobs;

Migrants represent an important pool of potential entrepreneurs)

TEN PRINCIPLES OF THE

SBA IN EUROPE (2010)

1. Develop a business environment friendly for entrepreneurship

2. Give a 2° chance to entrepreneurs who went bankruptcy

3. «Think Small»

4. Make PP rules easy for SMEs: responsive administration

5. Make easier for the SMEs to participate in PP tenders and use the State aid

6. Make easier the access to loans for SMEs and shorten the timing for

transaction payments by public administration

7. Help SMEs in taking advantage of the EU market

8. Support the upgrade of skills and promote innovation

9. Help SMEs in transform environmental challenges in opportunities

10. Encourage and support SMEs in growing with the international markets

SMEs IN ITALY: PERFORMANCES AGAINST EU

GOVERNMENTAL POLICIES’ AIM (2010)

• Italy performs in line with its EU peers in four out of nine

SBA principles, namely: 'Think Small First', 'Responsive

administration', 'Public procurement and State aid' and the

'Single market’

• Over the period 2005-2011, Italy’s performance in most

areas remained stable. On the positive side, the areas ‘Skills

and innovation’ and ‘State aid & public procurement’,

improved during this period

• Areas of most concern are ‘Entrepreneurship’, ‘Second

chance’, ‘Access to finance’ and ‘Internationalisation’ where

Italy is placed in the bottom left quadrant of the chart. Its

below EU average performance is matched by a downward

trend over 2005-2011

1/2

• In May 2010, Italy adopted a national strategy to implement

the SBA (Directive President of the Council of Ministers 4

May 2010), listing a number of priorities tailored to the

Italian business environment which should constitute a

strategic guideline for further legislative, regulatory and

administrative action

• The Government expects that implementation of the strategy

will lead to an 1 % increase of GDP and to the creation of

50 000 new jobs during 2010-2013

2/2

GOVERNMENTAL POLICIES’ AIM (2010)

SUCCESSFUL SMEs

SUCCESSFUL SMEs BY

COUNTRY

• A comparison over

time suggests an

improvement in

SMEs’ performance

in the majority of

EU-15 countries, but

a loss of market share

in most of the new

Member States

SHARES OF SMEs

• Total contract value secured: SMEs accounted

for about 34% of PP in 2006-2008, which is

18% lower than their overall share in economy

(combined turnover (52%))

• Medium enterprises are well represented in PP,

since their share of above threshold PP was

about 17% in 2008, close to their 19% share in

the economy

• The relative significance of micro and small

enterprises lags considerably behind their

actual role in the real economy. Micro-

enterprises account for about 6% of contract

value in public procurement above thresholds,

versus ca.17% of total turnover (-11%). Small

enterprises lag behind by 5%

• SMEs’ share of value contracted for contract below 300,000 euro slightly exceeds

corresponding figures for real economy. However, this is more than offset by huge

disadvantage (mostly micro & small enterprises) in accessing larger contracts

1/5

• Proportion of PP contracts awarded to SMEs was significantly larger for tenders

launched by local authorities and regional or local agencies than for national

agencies, bodies governed by public law or utilities. Micro-enterprises seem to take

most advantages from contracts issued by local authorities

• Share of procurement value secured by

SMEs was smaller in tenders published

by utilities and by bodies governed by

public law

SHARES OF SMEs 2/5

• Micro enterprises won 18-20%, small enterprises 21-23% and medium enterprises

16-21% under all four tender procedures

• SMEs fare well in open tender, but less so in restricted and negotiated procedures.

Under the new competitive dialogue, SMEs won only 6% of the total value of

contracts. The latter is explicable by the fact that the competitive dialogue is

designed for large, complex projects, which small companies usually can not lead

SHARES OF SMEs 3/5

• SMEs’ estimated share in terms of contract value is significantly lower in tenders

that select the ‘economically most advantageous tender’

• This is due to the fact that procurers use the EMAT criteria for high-value contracts

more often (as these are usually more complex, and quality and other factors play a

great role in the decision), and SMEs have correspondingly lower chances winning

these tenders

SHARES OF SMEs 4/5

• Large size of contracts is widely seen as most important barrier to SMEs accessing

public procurement. Statistics confirm that value of a public contract has an

influence on extent to which SMEs can access these. According to estimations,

proportion of SMEs awarded contracts is relatively stable at around 65% in

contracts worth less than €300,000, and starts to decline above this threshold. SMEs

have only limited access to large contracts above €5*106 (only 30%) • Proportion of SMEs in contracts with lowest

values (below €10,000) was below 60% in

2006/2008. It might be due to confounding effect

of a number of relatively large supply contracts

(e.g. pharmaceuticals) very often supplied by large

enterprises, which were broken down into tiny

lots, virtually item by item (e.g. in Poland)

• Share of public contracts secured by SMEs is only

21-29% for contracts worth more than €5*106, but

more than 60% in contracts of below €300,000.

Weight of SMEs starts to decrease above

€300,000 threshold

• Threshold above which SMEs are genuinely

disadvantaged is somewhere around 300,000 euro

SHARES OF SMEs 5/5

SUMMARY

• Proportion SMEs amongst companies winning above-threshold contracts is at 60%

(2006/2008). Micro-E 18%, Small E. 22% and Medium E. 20%. In terms of value of

contract, SMEs accounted for 34%, Micro-E. has a share of 6%, Small E. 11%, and

Medium E. 17%. Share of SMEs did not change markedly over last years

• SMEs share in above-threshold PP (contract value secured) is 18% lower than their

overall weight in economy. Medium E. do not seem to be unduly under-represented,

but micro and small E. lag considerably behind their actual role in real economy

• Weight SMEs is significantly larger in PP launched by local authorities and regional or

local agencies than in tenders of national agencies, bodies governed by public law or

utilities. SMEs win more public works contracts than services and especially supplies

contracts, however, in terms of value, their relative position is better in latter two types

of contract

• SMEs win open, restricted and negotiated procedures, as well as competitive dialogue

in almost exactly in the same proportion. In terms of value, they assume greatest

significance under open tenders (38%). Their share in PP launched under a competitive

dialogue is only 6%. PP procedures based on ‘economically most advantageous tender’

(EMAT) criteria do not seem to help SMEs’ chances of winning: their secured share of

public contracts was only about 28% (37% in 2008), as compared to 38-43% in

contracts on basis of lowest bid price

1/2

• Large size of contracts is arguably most important barrier for SMEs accessing PP.

Whilst SMEs won around or even more than 60% of contracts below €1*106 , they

barely won 30% of contracts above €5*106 . Similar applies to their share in terms of

total value of contracts secured

• Value threshold above which SMEs are considerably disadvantaged is in range of

€300,000 to €1*106 . Median contract size above thresholds range between 366 and 391

thousand euros, which should be accessible for SMEs. However, median value for

public works contracts has constantly increased over last years, from about 330

thousand to 928 thousand euro. Breaking down tenders into lots is commonly seen as

one of most important tools of helping SMEs to access public contracts and many CAEs

take advantage of this possibility. 27% of the Contract Award Notices (CANs) have

been broken down into two or more lots. On average, TED contains 2.7 lots per contract

award notice, and the number of lots published has surpassed growth in number of

CANs published between 2006 and 2008

• Regression analysis of individual factors influencing SMEs’ chances confirms that

higher value contract, lesser likelihood of SMEs winning contract. Procedures using

EMAT criterion tend to be won less frequently by SMEs, but subdivision of contract

into lots increases SMEs’ success rate, even above the evident effect of smaller contract

values – whereas tender procedure does not have a significant impact

SUMMARY 2/2

OBSTACLES FOR SMEs

• Breakdown of perceived obstacles by

enterprise size class shows remarkable

similarities for many barriers. Only micro-E.

that differ from rest, by facing problems more

often than other three enterprise categories

• Problems that are perceived by micro-E. more

often involve large contract values, for which

they are not big enough to compete

• Financial requirements such as bank guarantees

set out in terms of reference are significantly

more often a burden for them than for larger

companies

• Micro-E. are more vulnerable to overall

administrative burden of procedure and late

payments. They also find a lack of clarity in

tender documents more frequently, and think

that they have not been debriefed properly

• Larger E. perceived flaws in evaluation of bids that makes it unfair or not objective. When

asked about what exactly is problem in evaluation of tenders, many companies referred in

survey to problems with application of EMAT criteria

PROBLEMS WITH

PAYMENTS 1/2

PROBLEMS WITH

PAYMENTS 2/2

STRENGTHS SMEs 1/2

STRENGTHS SMEs 2/2

COMPARISON US-EU SMEs

PARTECIPATION

PUBLIC PROCUREMENT IN ITALY (2010)

• Considering only contract of more than 150,000 €

public expenditure accounts for more than 87

Billion € (about 58,000 procedures)

• In small contracts amount is about 102 Billion€

• Impact of internal (stability act + CIG) and

European rules

• Public procurement about 7.8% GNP

• 35% works, 37% services, 27% goods

SMEs IN ITALY: STATE AID AND PP

• Performance in line with EU average

• Positive picture skewed by average payment delay from public authorities, where Italy is

drastically behind with on average more than three months delay (100 days) as compared to 25

days in EU peer countries

• On policy front, Italy has taken a number of policy measures in this field. In 2010, a series of

seminars on international procurement opportunities were arranged for Italian SMEs at

initiative of Ministry of Economic Development

COSTS OF PAYMENTS DELAY (2010)

Total costs of the firms (2010

Incidents of loans on the total turn-over is around 2.5%,

while in terms of turn-over with public administration it is

around 11%

RECOMMENDATION UK

FEDERATION SMALL BUSINESS

SMEs’ REQUESTS (2010)

SMEs’ PERCEPTION OF THE GAPS (2010)

SMEs AND PP ITALY (2011)

• European and Italian legislation against payment

delay

• Bank for dealing with such a problem

Documents

Strategy to deliver public procurement: opportunities to SMEseconomia.uniroma2.it/public/ppm/files/PPM_RomeTV_July14_(integrato... · Strategy to deliver public procurement: opportunities